Earnings call transcript: Forestar Q3 2025 misses EPS, stock rises

Forestar Group Inc. reported its third-quarter 2025 earnings, revealing a shortfall in both earnings per share (EPS) and revenue compared to analyst expectations. Despite the miss, the company’s stock rose by 4.69% in pre-market trading, reflecting investor optimism on strategic growth initiatives and market expansion efforts. According to InvestingPro data, the company maintains a healthy financial position with a "GOOD" overall health score, though analysts have recently revised earnings expectations downward for the upcoming period.

Key Takeaways

• Forestar’s Q3 2025 EPS was $0.65, below the forecasted $0.76.
• Revenue reached $390.5 million, up 23% year-over-year but slightly under the forecast.
• Stock price increased by 4.69% in pre-market trading despite the earnings miss.
• The company entered seven new markets and increased its community count by 16%.

Company Performance

Forestar Group reported a robust year-over-year revenue growth of 23% in Q3 2025. The company sold 3,605 lots, marking an 11% increase from the previous year, and expanded its market presence by entering seven new regions. Despite these gains, the company faced challenges with a reduced gross profit margin of 20.4%, down from 22.5% last year, and weaker consumer confidence affecting new home sales.

Financial Highlights

• Revenue: $390.5 million, up 23% year-over-year.
• Earnings per share: $0.65, missing the forecast of $0.76.
• Gross profit margin: 20.4%, down from 22.5% last year.
• Lots sold: 3,605, an 11% increase year-over-year.

Earnings vs. Forecast

Forestar Group’s EPS of $0.65 fell short of the forecasted $0.76, resulting in a negative surprise of 14.47%. Revenue also missed expectations slightly, coming in at $390.5 million against a forecast of $392 million, a surprise of -0.38%. The earnings miss was significant, but the company’s strategic initiatives may have mitigated negative market reactions.

Market Reaction

Despite missing earnings expectations, Forestar’s stock price increased by 4.69% in pre-market trading. This rise suggests that investors are optimistic about the company’s long-term growth potential and strategic market expansions. The stock’s current price of $23 is within its 52-week range of $18-$34.82. According to InvestingPro’s Fair Value analysis, the stock appears undervalued at current levels, presenting a potential opportunity for value investors. Discover more undervalued opportunities at Investing.com’s Most Undervalued Stocks.

Outlook & Guidance

Forestar provided revenue guidance for FY2025 in the range of $1.5 to $1.55 billion, with expected lot deliveries between 14,500 and 15,000. The company anticipates continued headwinds in home affordability but remains confident in the long-term demand for finished lots. The guidance suggests a stable outlook despite near-term challenges.

Executive Commentary

CEO Andy Oxley highlighted the company’s strategic advantages, stating, "Our unique combination of financial strength, operating expertise, and a diverse national footprint enables us to consistently provide essential finished lots to homebuilders." CFO Jim Allen added, "We underwrite returns, not to margin," emphasizing the company’s disciplined investment approach.

Risks and Challenges

• Affordability constraints and weaker consumer confidence could impact new home sales.
• Declining gross profit margins may pressure profitability.
• Potential delays in land development due to regulatory challenges.
• Economic uncertainties affecting the housing market.

Q&A

During the earnings call, analysts questioned the company’s gross margin expectations and expansion plans. Management reiterated a gross margin target of 21-23% and highlighted new market entries in the Pacific Northwest and Northern California as part of its growth strategy.

Full transcript - Forestar Group Inc (FOR) Q3 2025:

John, Conference Call Operator: Good morning and welcome to Forestar’s Third Quarter twenty twenty five Earnings Conference Call. Question Please note this conference is being recorded. I will now turn the call over to Chris Hebetz, Vice President of Finance and Investor Relations for Forestar.

Chris Hebetz, Vice President of Finance and Investor Relations, Forestar: Thank you, John. Good morning, and welcome to our call to discuss Forestar’s third quarter results. Before we get started, I want to remind everyone that today’s call includes forward looking statements defined by the Private Securities Litigation Reform Act of 1995. Although Forestar believes any such statements are based on reasonable assumptions, there is no assurance that actual outcomes will not be materially different. All forward looking statements are based upon information available to Forestar on the date of this conference call, and we do not undertake any obligation to update or revise any forward looking statements publicly.

Additional information about factors that could lead to material changes in performance is contained in Forestar’s annual report on Form 10 ks and its most recent quarterly report on Form 10 Q, both of which are filed with the Securities and Exchange Commission. Our earnings release is on our website at investor.forestar.com, and we plan to file our 10 Q later this week. After this call, we will post an updated investor presentation to our Investor Relations site under Events and Presentations for your reference. Now, I will turn the call over to Andy Oxley, our President and CEO.

Andy Oxley, President and CEO, Forestar: Thanks, Chris. Good morning, everyone. I’m also joined on the call today by Jim Allen, our Chief Financial Officer, and Mark Walker, our Chief Operating Officer. The Forestar team delivered a solid third quarter, generating $32,900,000 of net income or $0.65 per diluted share on $390,500,000 of revenue. Lots sold increased 11% year over year and 6% sequentially to 3,605 lots.

Additionally, lots under contract to sell increased 26% from a year ago to 25,700 lots, representing 38 of our owned lot position and $2,300,000,000 of future revenue, which is the highest contracted backlog we have had during the last five years. While affordability constraints and weaker consumer confidence continue to impact the pace of new home sales, we maintained strong liquidity through disciplined investment in inventory. Our experienced operators are adjusting the pace of development where appropriate, and we are moderating our land acquisition investments. Over 80% of our investments this quarter were for land development. We remain focused on turning our inventory, maximizing returns, and consolidating market share in the highly fragmented industry.

Our unique combination of financial strength, operating expertise, and a diverse national footprint enables us to consistently provide essential finished lots to homebuilders and navigate current market conditions effectively. We will now discuss our third quarter financial results in more detail.

Jim Allen, Chief Financial Officer, Forestar: Jim? Thank you, Andy. In the third quarter, net income was $32,900,000 or $0.65 per diluted share, compared to $38700000.0.76 per diluted share in the prior year quarter. Revenues for the third quarter increased 23% to 390,500,000 compared to $318,400,000 in the prior year quarter. Our gross profit margin for the quarter was 20.4% compared to 22.5% for the same quarter last year.

The current year quarter was negatively impacted by the closeout of one community with an unusually low margin. Excluding the effect of this item, our current year quarter gross margin would have been approximately 21.1%. Our pretax income was $43,600,000 compared to $51,600,000 in the third quarter of last year. And our pre tax profit margin this quarter was 11.2%, compared to 16.2% in the prior year quarter. The prior year quarter was positively impacted by a $5,000,000 gain on sale of assets.

Pretax profit margin in the prior year quarter, excluding the gain on sale, would have been 14.6%. Lots sold in our third quarter increased 11% to 3,605 lots, with an average sales price of $106,600 Our average sales price this quarter was impacted by an outsized mix of lot deliveries from communities with higher price point lots. We expect continued quarterly fluctuations in our average sales price based on the geographic and lot size mix of our deliveries.

Chris Hebetz, Vice President of Finance and Investor Relations, Forestar: Chris? In the third quarter, SG and A expense was $37,400,000 or 9.6% as a percentage of revenues compared to 9.2% in the prior year quarter. Our increase in SG and A is primarily driven by the expansion of our operating platform, including entering seven new markets alongside Doctor Horton’s footprint and increasing community count by 16% in the last year. We are pleased with the progress we have made building our team and we continue to attract high quality talent. We remain focused on efficiently managing our SG and A while investing in our teams to support future growth.

Mark?

Mark Walker, Chief Operating Officer, Forestar: New home sales have been slower than last year as continued affordability constraints and weaker consumer confidence continue to weigh on demand. However, mortgage rate buy down incentives offered by builders are helping to bridge the affordability gap and spur demand for new homes, particularly in more affordable price points. Our primary focus remains developing lots for new homes at prices that target entry level and first time buyers, which is the largest segment of the new home market. The availability of contractors and necessary materials remain solid and land development costs have stabilized. We have also seen improvement in cycle times despite continued governmental delays.

Our teams utilize best management practices and work closely with our trade partners to develop lots to drive operational efficiency. Jim?

Jim Allen, Chief Financial Officer, Forestar: Doctor Horton is our largest and most important customer. 15% of the homes Doctor Horton started in the past twelve months were on a four star developed lot, and 23% of their finished lot purchases this quarter were lots developed by four star. With a mutually stated goal of one out of every three homes Doctor Horton sells to be on a lot developed by four star, we have a significant opportunity to grow our market share within D. R. Horton.

We continue to work on expanding our relationships with other homebuilders and intermediaries. 15% of our third quarter deliveries, or five thirty lots, were sold to other customers, which includes three thirty one lots that were sold to a lot banker who expects to sell those lots to D. R. Horton at a future date. We also sold lots to eight other homebuilders, one of which was a new customer.

Mark?

Mark Walker, Chief Operating Officer, Forestar: Our total lot position at June 30 was essentially flat from a year ago at 102,300 lots of which 68,300 or 67% was owned and 34,000 or 33% were controlled through purchase contracts. 10,000 of our own lots were finished at quarter end and the majority are under contract to sell. Consistent with our focus on capital efficiency, we target owning a three to four year supply of land and lots and manage development phases to deliver finished lots at a pace that matches market demand. Own lots under contract to sell increased 26% from a year ago to 25,700 lots or 38% of our own lot position. Dollars $230,000,000 of hard earnest money deposits secure these contracts, which are expected to generate approximately $2,300,000,000 of future revenue.

Our contracted backlog is a strong indicator of our ability to continue gaining market share in a highly fragmented lot development industry. Another 27% of our own lots are subject to a right of first offer to Doctor Horton based on executed purchase and sale agreements. Chris?

Chris Hebetz, Vice President of Finance and Investor Relations, Forestar: Worcester’s underwriting criteria for new development projects remains unchanged at a minimum 15% pre tax return on average inventory and a return of our initial cash investment within thirty six months. During the third quarter, we invested approximately $372,000,000 in land and land development, which was relatively flat with the prior year quarter. Roughly 20% of our investment was for land acquisition and 80% was for land development. Although we have moderated our land acquisition investment, our team remains disciplined, flexible and opportunistic when pursuing new land acquisition opportunities. Our current land and lot position will allow us to return to strong volume growth in future periods, and we still expect to invest approximately $1,900,000,000 in land acquisition and development in fiscal twenty twenty five, subject to market conditions.

Jim?

Jim Allen, Chief Financial Officer, Forestar: We have significant liquidity and are using modest leverage to keep our balance sheet strong and support our growth objectives. We ended the quarter with $792,000,000 of liquidity, including an unrestricted cash balance of $189,000,000 and $6.00 $3,000,000 of available capacity on our undrawn revolving credit facility. Total debt at June 30 was $873,000,000 with $70,400,000 of senior note maturities in the next twelve months, and our net debt to capital ratio was 28.9%. We ended the quarter with $1,700,000,000 of stockholders’ equity, and our book value per share increased 11% from a year ago to $33.4 Forestar’s capital structure is one of our biggest competitive advantages, and it sets us apart from other land developers. Project level land acquisition and development loans are less available and have become more expensive in recent years, impacting most of our competitors.

Other developers generally use project level development loans, which are typically more restrictive, have floating rates, and create administrative complexity, especially in a volatile rate environment. Our capital structure provides us with operational flexibility, while our strong liquidity positions us to take advantage of attractive opportunities as they arise. Andy, I will hand it back to you for closing remarks.

Andy Oxley, President and CEO, Forestar: Thanks, Jim. As outlined in our press release, we are maintaining our fiscal twenty twenty five revenue guidance of $1,500,000,000 to $1,550,000,000 while lowering our lot delivery guidance to 14,500 to 15,000 lots in response to current market conditions. Our team has a proven track record of adjusting to changes in market conditions quickly, and we are closely monitoring each of our markets as we strive to balance pace and price to maximize returns for each project. While we expect home affordability constraints and cautious home buyers to continue to be a near term headwind for new home demand, we are confident in the long term demand for finished lots and our ability to gain market share in the highly fragmented lot development industry. Continued execution of our strategic and operational plans, combined with constrained finished lot supply across the majority of our diverse national footprint, positions us for further success.

With a clear direction, a dedicated team, and a strong operational and financial foundation in place, I am excited about Forestar’s future. John, at this time, we’ll open the line for questions.

John, Conference Call Operator: Thank you. At this time, we will be conducting a question and answer You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. The first question comes from Trevor Allinson with Wolfe Research.

Please proceed.

Trevor Allinson, Analyst, Wolfe Research: Hi, good morning. Thank you for taking my questions. First one’s on gross margins. You called out the single community had, I think you said roughly a 70 basis point impact on margins. Excluding that, it still seems like gross margins took a step down, both sequentially and year over year in the quarter.

Should we think about this 21% gross margin rate being a good run rate going forward? Or were there other kind of one time impacts in the quarter that impacted your margins?

John, Conference Call Operator: Just one moment.

Jim Allen, Chief Financial Officer, Forestar: The range of 21 to 23%. So at the lower end of the range for this quarter. But we haven’t, we really haven’t seen anything that would indicate significantly lower margins going forward.

Trevor Allinson, Analyst, Wolfe Research: Okay, you guys cut off for quite a long time. Really only caught the end of that question. Could you repeat the beginning I’m of not sure if other people had the same technical difficulty, but I think I only caught probably the last five or six words of your answer.

Jim Allen, Chief Financial Officer, Forestar: Okay. Sorry about that. Yeah, it’s really mostly mix. I mean, again, if you exclude that one closeout community and in our margins, our normalized margin for the quarter would have been 21.1. We try to do that every quarter adjust for unusually high or low lot sales, margin lot sales, or kind of one time items.

Over the last three years, that range has kind of been in the 21% to 23% range. So this quarter was a little bit lower. But, know, and we’re continuously managing price and pace at each community to maximize returns. We underwrite returns, not to margin. We’re always going to have a mix of higher or lower margins, depending on which communities are delivering in the period.

So this quarter was kind of at the lower end. But at this point, we see no indication of reduced margins.

Trevor Allinson, Analyst, Wolfe Research: Okay. All right. That’s very helpful. And apologies if others could hear you clearly and I had to repeat the answer there. Second question is around development costs.

You mentioned again that they’ve stabilized. I think you used similar language last quarter. Have you started to see the development costs actually decline sequentially or is it just more of a stabilization as you say and those are kind

Chris Hebetz, Vice President of Finance and Investor Relations, Forestar: of flattish quarter over quarter?

Mark Walker, Chief Operating Officer, Forestar: It’s flattish and they’ve been stabilized for quite some time now. Sometimes we see some upticks in some categories and some downward mobility in others as well, but for the most part we’re just classifying it as stable.

Trevor Allinson, Analyst, Wolfe Research: Okay, makes sense. Thank you for all the color and good luck moving forward.

Jim Allen, Chief Financial Officer, Forestar: Thanks.

John, Conference Call Operator: The next question comes from Anthony Pettinari with Citigroup. Please proceed.

Asher Sonin, Analyst, Citigroup: Hi, this is Asher Sonin on for Anthony. Thanks for taking clarify about the guide. I mean, you trimmed your volume guidance, but reiterated revenue, which I guess implies better pricing. Is that just a function of maybe the mix of which communities are delivering or are there other puts and takes on pricing that we should think about?

Chris Hebetz, Vice President of Finance and Investor Relations, Forestar: Yeah, I mean, if you just kind of look back to our original guidance and the ASP implied in that, to date, we’ve realized a higher ASP, which is partly due to lot price increase, but largely due to mix as well. So if you just look at the average selling price to date, what that implies for the fourth quarter, leads to us leading our revenue guidance at the same level.

Asher Sonin, Analyst, Citigroup: Great, thanks. And then just to clarify on that last point, what would you point to as driving those lot price increases? In

Chris Hebetz, Vice President of Finance and Investor Relations, Forestar: our original guidance, we had implied a low single digit ASP increase just based on the national shortage of finished lots. It really is community by community where the lots are located for the price, but then like I said, a large part of our ASP increase is just due to mix of where those are located.

Asher Sonin, Analyst, Citigroup: Okay, understood. Thanks. I’ll turn it over.

John, Conference Call Operator: The next question comes from Michael Rehaut with JP Morgan. Please proceed.

Alex Isaac, Analyst, JP Morgan: Hi, good morning. This is Alex Isaac on for Mike. Appreciate you taking my question. I want to ask about, the new markets you entered and just curious if there’s any like regional focus, as well as what you’re seeing on the ground between the regions that you operate in?

Andy Oxley, President and CEO, Forestar: Yeah. So, as we’ve talked about, we are opening up in, the Pacific Northwest, Northern California, Salt Lake, Reno. So, those are all new markets for us. And, we have team members now, boots on the ground, and are in the process of building out support around those as market conditions allow.

Chris Hebetz, Vice President of Finance and Investor Relations, Forestar: Those are all new markets in the last year, but we didn’t have any new markets necessarily in this quarter.

Alex Isaac, Analyst, JP Morgan: Okay, that sounds great. Appreciate that. Then one other question, you mentioned all the capital structure, there’s been some questions that we’ve received related to some of the other competitors in the land development space and their REIT structure. Is there interest or would there be any consideration of conversion to a REIT for Forestar? Or has that been something that you’ve considered?

Jim Allen, Chief Financial Officer, Forestar: No. Not not really. I mean, we’re, you know, we’re, a developer, as opposed to, you know, land banker, you know, just providing financing. So I think that’s that’s really our our business model and our focus.

Alex Isaac, Analyst, JP Morgan: That sounds great. Appreciate all the color.

John, Conference Call Operator: The next question comes from Barry Hames with Sage Asset Management. Please proceed.

Barry Hames, Analyst, Sage Asset Management: So much for taking my question. D. R. Horton on their call talked about a slower growth in their community count as they go through the next few quarters into next fiscal year. I think they talked about having been in double digits and getting down to more of a mid single digit.

It sounded like maybe over a couple of quarters. But could you talk about how that might affect your thoughts going forward as you start thinking about the next fiscal year? Thanks so much.

Andy Oxley, President and CEO, Forestar: Well, we still have a lot of growth opportunity within Horton because at the moment, we’re about 15% of their lots. And our mutually stated goal is to basically double that in the intermediate term. So, I think that we will continue to see growth and market share, consolidation, within Horton, but also, we are increasing our customer base, with other builders as well. And continuing to add new customers to the mix. So, we think we have significant opportunity to grow both within the Horton footprint and outside.

Barry Hames, Analyst, Sage Asset Management: Great, thanks so much. Appreciate it.

Andy Oxley, President and CEO, Forestar: Thank you. Thank you, John, and thank you to everyone on the Forestar team for your focus and hard work. Stay disciplined, flexible, and opportunistic as we continue to consolidate market share. We appreciate everyone’s time on the call today and look forward to speaking with you again to share our fourth quarter results on Tuesday, October 28.

John, Conference Call Operator: This concludes today’s conference and you may disconnect your lines at this time. Thank you for your participation.

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